From the invitation to the plan approval, and then the waterfall

Section 29 requires the resolution professional to prepare an information memorandum containing the information the Board specifies for formulating a plan. A resolution applicant gets access to all relevant information in physical and electronic form, including the company's financial position and the disputes by or against it, on undertaking to keep it confidential, to protect the company's intellectual property, and not to share it with third parties except on those terms.

Under section 25(2)(h) the professional invites prospective resolution applicants who meet criteria laid down with the committee's approval, having regard to the complexity and scale of the business. Section 30(1) requires every plan to come with an affidavit that the applicant is eligible under section 29A, which excludes, among others, an undischarged insolvent, a wilful defaulter under the Reserve Bank's guidelines, a person whose account has been a non-performing asset for the period clause (c) states, and a guarantor whose guarantee has been invoked by an admitted applicant and remains unpaid.

Section 30(2) is the checklist the professional applies before a plan goes to the committee. The plan must provide for payment of the insolvency resolution process costs in priority to other debts. It must pay operational creditors not less than the higher of what they would receive in a liquidation under section 53 and what they would receive if the plan amount were distributed in the section 53 order, and pay financial creditors who do not vote for it not less than their liquidation entitlement under section 53(1). Explanation 1 to clause (b) declares such a distribution fair and equitable.

Explanation 2 applies clause (b), from the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, to processes in which the plan had not yet been approved or rejected, or where an appeal was pending or still in time. The plan must also provide for management of the company after approval and for implementation and supervision, must not contravene any law in force, and must meet the Board's other requirements. A shareholder approval needed under the Companies Act, 2013 for an action under the plan is deemed given.

Section 30(4) lets the committee approve a plan by not less than sixty-six per cent. of the voting share of the financial creditors, after considering feasibility and viability, the manner of distribution, which may take into account the order of priority in section 53(1) including the priority and value of a secured creditor's security, and the Board's other requirements. The percentage has changed over time: in K. Sashidhar v. Indian Overseas Bank the Supreme Court applied the requirement as it stood in October 2017, a vote of not less than seventy-five per cent., held it mandatory, and treated the plans that missed it as rejected.

In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta the Supreme Court held that equitable treatment does not mean identical treatment, that a plan may treat secured and unsecured financial creditors, and financial and operational creditors, differently, and that the Tribunal and the Appellate Tribunal cannot substitute their own commercial view for the committee's. It also upheld sections 4 and 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, with a modification to section 4.

Section 31(1) requires the Tribunal to approve a plan approved by the committee if it meets section 30(2) and has provisions for its effective implementation. The approved plan binds the company, its employees, members and creditors, including the Central Government, any State Government or local authority to whom statutory dues are owed, its guarantors and the other stakeholders. Under section 31(3) the moratorium ends and the professional sends the records to the Board. Section 31(4) gives the resolution applicant one year from approval, or the period in the other law if later, to obtain the approvals it needs, and approval of the Competition Commission for a combination must come before the committee approves the plan.

In Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. the Supreme Court held that once the plan is approved, claims not included in it stand extinguished and no proceeding can be continued or begun for dues of the earlier period, by any creditor including the government. It held the 2019 amendment to section 31, which added the words on government dues, to be clarificatory and declaratory.

Section 32 sends an appeal against an approval order through section 61(3). Section 61(2) allows thirty days to appeal to the National Company Law Appellate Tribunal, with a further fifteen days on sufficient cause. The grounds are limited: contravention of law, material irregularity by the resolution professional, operational creditors not provided for in the specified manner, resolution costs not given priority, or non-compliance with the Board's criteria.

The plan has to provide for its own implementation and supervision under section 30(2)(d), and the Tribunal checks for effective implementation before approving it. If the company contravenes the approved plan, section 33(3) lets any other person whose interests are prejudicially affected apply for a liquidation order, and section 33(4) requires the Tribunal to pass one if it finds the contravention.

In State Bank of India v. Consortium of Murari Lal Jalan and Florian Fritsch the Supreme Court found that the successful resolution applicant had not implemented the plan: it had not infused the cash, paid the airport dues or paid the workmen. The Court held that the Appellate Tribunal's order adjusting the performance bank guarantee against the first tranche payment was unsustainable, held that timely implementation is an objective of the Code, and directed the liquidation of the company in exercise of its power under Article 142 of the Constitution.

Section 33(1) requires a liquidation order where no plan is received within the maximum period under section 12, or the Tribunal rejects the plan under section 31. Section 33(2) requires one where the committee decides, by not less than sixty-six per cent. of the voting share, to liquidate, and the Explanation allows that decision at any time after the committee is constituted, even before the information memorandum is prepared. The Tribunal also issues a public announcement that the company is in liquidation and sends the order to the authority with which the company is registered.

Once the order is passed, section 33(5) bars suits by or against the company, except a suit by the liquidator with the Tribunal's prior approval. Under section 33(7) the order operates as a notice of discharge to the officers, employees and workmen, unless the liquidator continues the business. Section 34 makes the resolution professional the liquidator, on written consent, unless the Tribunal replaces him, and vests the powers of the board and key managerial personnel in the liquidator.

Section 35 gives the liquidator power to verify claims, take custody of the assets, value them, carry on the business for a beneficial liquidation and sell the property by public auction or private contract. Its proviso bars a sale to any person not eligible to be a resolution applicant. Section 36 has the liquidator hold the liquidation estate as a fiduciary for all the creditors, and section 36(3)(f) includes in it recoveries from avoidance proceedings.

Section 52 gives a secured creditor a choice. It can relinquish its security to the liquidation estate and take its place in the section 53 order, or realise the security itself under the law that governs it, after the liquidator verifies the security from the records of an information utility or other specified means. In Vistra ITCL (India) Ltd. v. Dinkar Venkatasubramanian the Supreme Court held that a pledgee of shares given by the company as security for another's debt was not a financial creditor but was to be treated as a secured creditor with the rights in sections 52 and 53.

Section 53(1) applies notwithstanding anything in any Central or State law. It pays, in order: the insolvency resolution process costs and liquidation costs in full; workmen's dues for the twenty-four months before liquidation and the debts of secured creditors who relinquished security, ranking equally; wages and unpaid dues of other employees for twelve months; financial debts owed to unsecured creditors; amounts due to the Central and State Governments for the two years before liquidation together with the unpaid balance of secured creditors who enforced their security, ranking equally; remaining debts; preference shareholders; and equity shareholders or partners.

Section 53(2) tells the liquidator to disregard a contractual arrangement between equally ranking recipients that disrupts this order, and section 53(3) deducts the liquidator's fee proportionately from each class. Within a class, each debt is paid in full or in equal proportion if the proceeds fall short. Once the assets are completely liquidated, section 54 requires the liquidator to apply for dissolution, and the Tribunal's order dissolving the company goes to the authority with which it is registered within seven days.

Much of the procedure for both stages is in the Board's regulations rather than the Code. Under the Insolvency Resolution Process for Corporate Persons Regulations, 2016, as amended, the resolution professional issues the information memorandum, an evaluation matrix and a request for resolution plans to every applicant in the final list, and regulation 39(3), as substituted, requires the committee to evaluate the plans as per the evaluation matrix, record its deliberations on the feasibility and viability of each plan, and vote on all of them together. The Liquidation Process Regulations, 2016 carry the procedure for liquidation. Section 30(2)(b) itself says the payment to operational creditors and dissenting financial creditors is to be made in such manner as may be specified by the Board.

A creditor or bidder should therefore read the plan against both the section and the regulation in force on the date of the plan. The Code sets the minimum payments and the vote; the regulations set the procedure the professional has to follow.